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Beginners guide to investing   ‘‘There is no need to pay out large sums of money for courses which provide little in the way of real education. Read some books and most importantly, learn the important questions to ask when starting your portfolio’’     If you have decided to buy property as an investment, but have never invested before, you may think, since now seems to be a buyer’s market and interest rates are low, you are ready to get started. Many people become investors because they have seen a property that they feel may be a good investment, rather than deciding to become an investor then finding the property. The main issues with this method are that, firstly, it does not allow you to become educated about how to invest, secondly, you are not carrying out effective research about the area or the property and, thirdly, you may not have taken some very important steps before becoming a property investor. Financial housekeeping is a crucial step all investors must take before leaping into the fray. While you might think that your financial house is in order, it doesn’t hurt to take stock of where you are, and prepare well for what’s to come. If you have a home loan on an owner-occupied property, ensure that it is set up and structured to make investing more efficient. Once you increase your debt to buy a new property, make sure that debt reduction takes place on your owner-occupied, non-tax-deductible debt first, before any principal is repaid on your new investment debt. As such you will want your home loan to be flexible enough to make additional repayments which can easily be drawn back in the event that you need extra funds to support your property, and it needs to be a loan structure where the debt is quarantined from any subsequent investment debt you may have. Regardless of how big your portfolio becomes and how financially secure you are, paying attention to how you earn and spend your money is always important. Once you begin to invest, you may have to meet unexpected expenses, such as new hot water services, longer periods of vacancy and rising interest rates. It is during this time that you will experience the most financial stress, and if you are used to managing your money and know exactly where it goes, making the required adjustments will be easier. Sit down and prepare a complete budget, and identify those areas where you can make changes should the need arise. Then, be sure to track your money as you spend it and adjust your spending each time you go over budget. While you may previously have prepared your own tax returns, or had a small tax agent do this for you at a low cost, accounting when you have property becomes more complex and you’ll need to work with an expert. Not all accountants have the necessary skills to assist you with your property claims, so before you buy an investment home, hire a specialist. Prepare a list of questions and shop around a little until you find someone who seems to have the capacity to assist you. Ensure you are educated before starting to grow your portfolio. I consistently meet people who fell into investing without really knowing what they were doing, and this left them vulnerable to opportunists who sold them something that worked better for the seller than the investor. There is no need to pay out large sums of money for courses which provide little in the way of real education. Read some books, talk to others and, most importantly, learn the important questions to ask when starting your portfolio. Asking the right questions of the right people will go a long way to ensuring your first purchase is both a positive experience and a successful investment. Finally, before deciding on any type of investment, you must complete a risk questionnaire. This will allow you to know what type of risk-taker you are, and in turn help you to buy the right kind of property. The risk profile questionnaire (overleaf) rates all property types in terms of their risk, so the higher your score, the bigger the risk. Once you are ready to go, get the expert advice you need and be confident you are taking a responsible approach to your future financial needs.   RISK PROFILE QUESTIONNAIRE   1 Where are you in life right now? Points a) Single. You have no real financial commitments but would like to save for the future. You would also like to have some cash available to enjoy the present. 50 b) A couple without children. You are purchasing your own home but have disposable income to enjoy life. 40 c) Young family. You have a mortgage and only a small cash flow. You wish you could save more but have no real savings. 30 d) Grown up family, almost left home. Your earning potential is the best it has ever been and you manage your mortgage well or have it almost paid off. You are just starting to think about your retirement. 50 e) Retirement is just a few years away. You own your home and have few financial burdens, but you are thinking about saving for your retirement. 20 2 What return do you want from your investments?   a) 0 – 3% pa 10 b) 3 – 5% pa 20 c) 5 – 7% pa 30 d) 7 – 9% pa 40 e) 9 – 12% pa 50 3 If you could lock away your savings for 10 or 15 years, and during that time the performance was not what you hoped, how long before you would cash it in?   a) As soon as there was a loss in value. 0 b) Less than one year. 20 c) Up to three years. 30 d) Up to five years. 40 e) Up to seven years. 50 f) Up to 10 years. 0 4 How familiar are you with investment strategies and products?   a) You don’t understand a lot and lack interest. 10 b) You have read up a bit but are not very familiar. 20 c) You know a little and appreciate the importance of diversification. 30 d) You understand that investment performance changes and that different types of investments offer different income, growth and taxation characteristics. 40 e) You are an experienced investor and understand the various factors that influence performance. 50 5 If you were going to invest now, what would you look for?   a) Preferably guaranteed returns. 10 b) Stable, with positive returns. 20 c) Some variability in returns, but a chance of higher overall return. 30 d) Moderate variability in returns. 40 e) Unstable. 50 6 How would you feel if your investment decreased in value by 20%?   a) Horrified because you do not take risks and cannot lose any of your money. 10 b) You would get out and transfer what was left to something safer. 20 c) You would not be happy but you would wait a while to see if it recovered. 30 d) You expect that this is what happens when you invest and you would wait for a turn around. 40 e) You would invest more funds to lower your average investment price, fully expecting future growth. 50 7 Why are you considering investing?   a) You think you should begin to plan a little for your future even if you don’t need the money for some time yet. You don’t need extra income now, however. 50 b) You are now at the point where you do have surplus funds and are looking for a balanced investment to accrue a retirement income. 40 c) You have a lump sum (for example, an inheritance or an eligible termination payment from your employer) but you do not know what to do with it. 30 d) Retirement is fairly close and you want to have some extra funds available. 20     Click here for local property listings